Friday, July 30, 2010

Why Information Is Not Free: The Myth of Frictionless Capitalism...

Information is the lifeblood of markets - knowing what is available, where it's available, and who wants it are crucial. Internet talking-heads have long insisted that, in the Digital Age, information wants to be free. But is this really the case?

In his book, Reinventing the Bazaar: A Natural History of Markets, John McMillan argues that, in fact, it is not case.

When we think of internet economics from a consumer-driven perspective, we think of comparison shopping. The search costs involved in finding the best price for a specific item have been greatly reduced by people's new ability to simply Google that item and see, within a matter of seconds, which seller is offering it at the lowest price. It's not rocket science to see how the balance of bargaining power has shifted to consumers.

And from the sellers' perspective, using information to match demand and serve the demand also creates positive economic externalities. This is what Bill Gates has referred to as "friction-free capitalism".

This all sounds logical in theory, however the results haven't always panned out as expected.

While it's true that the ease of comparison shopping on the internet has brought a perceptible lowering of prices, as economic theory predicts, it has failed to eliminate the dispersion of prices. What this means is that the same book might cost $19.99 on Amazon, but &16.99 on Barnes &, and $12.99 on In fact, if you perform a comparison shop on almost any item, it's striking how different prices on the same item remain despite the sellers' knowledge that many consumers comparison shop so easily on the Web. According to one study, the typical price dispersion was 37% for books and 25% for CDs. For books, there is actually more price variation among internet retailers than among bricks-and-mortar retailers.

Thus, the ready availability of "free" price information has not driven prices of identical items into alignment. This is something of a puzzle. McMillan says this can possibly be explained by 1) the laziness of shoppers to search for the lowest price, 2) the reliability of the seller, and 3) trust in the proprietor's judgment. Basically, the shopper is not simply buying a book, but a package of services of which the book itself is only a part. "Apparently, homogeneous items often are not actually homogeneous: it matters where you buy them".

This hardly paints a picture of frictionless capitalism. There are still clear search and transaction costs involved in the functioning of even the most modern digital markets, and that's a point worth remembering to those who tend to oversimplify E-business models.

What Stewart Brand once said still holds true... "Information wants to be free. Information also wants to be expensive. [It] wants to be free because it has become so cheap to distribute, copy, and recombine - too cheap to meter. It wants to be expensive because it can be immeasurably valuable to the recipient".

Friday, July 23, 2010

How the Internet Fails to Redress Participatory Inequality in American Politics...

Since its inception people have touted the internet's potential as a democratizing force; that it would transcend issues like geography, income, and education levels, ultimately empowering more Americans to participate actively in politics.

Has it lived up to its promise?

This is the question asked in the article, "Weapon of the Strong? Participatory Inequality and the Internet" co-authored by Kay Lehman Schlozman, Sidney Verba, and Henry E. Brady, and published in the journal, Perspectives on Politics (vol. 8 no. 2).

In short, the answer is "No". The authors' extensive research study uncovered that, when it comes to political participation, the internet has failed to ameliorate the inequalities that have existed offline for decades. As any freshman student of Politics 101 learns, those who are disadvantaged are less likely to be politically active, and thus far the internet has failed to disrupt the pattern of association between that socio-economic disadvantage and the lack of political activity.

Even when only that subset of the population with internet access is considered, participatory acts such as contributing to candidates, contacting officials, signing a political petition, or communicating with political groups are as stratified socio-economically when done on the web as when done offline.

The are three reasons why people don't become active in politics: They can't; they don't want to; and nobody asked. The internet is certainly capable of lowering each of these barriers, however, rather than raising the level of political activity, it has instead simply "repackaged" it. The authors conclude that "instead of citizens undertaking political action that they ordinarily would not, people who would have participated anyway might simply be taking their activity online".

A convincing amount of data is presented in support of these conclusions (even if the multitude of charts and graphs require strenuous effort to decipher), and most potential criticisms of the research methodology, like the outdated 2008 time frame, is openly addressed and acknowledged by the authors themselves.

These results are certainly disappointing, but perhaps the most important finding is that, while the internet has failed to transcend the socio-economic inequalities of political participation, it has actually shown a real potential to mitigate a different participatory deficit - the youth. It's common knowledge that younger citizens, particularly those just joining the electorate, are notorious for being less politically engaged (especially when it comes to voting). The internet has indeed demonstrated a transformative shift among America's online youth as they are less underrepresented than they are offline. In fact, they dominate blogs and politically relevant uses of social-networking sites, and are more likely than their elders to receive and send requests for political activity by email.

So if the internet has virtually no effect on the political participation gap among socio-economic groups, but is showing some potentially significant effects on the political habits of youth voters, the original question remains unanswered...

To what extent is it a truly democratizing force?

Wednesday, July 21, 2010

ASCAP and the Copyright Bill of Rights for Songwriters and Composers...

One of the reasons why the digital copyright debate rages on is its often-overlooked complexity and the fact that there are no clear solutions. Both the copyright and copyleft have valid arguments, and to dismiss that haphazardly is to fuel fire to the extremists on both sides, ultimately hindering any efforts at badly needed legal reform.

Several days ago I had a long and thoughtful discussion with an employee of ASCAP - the American Society of Composers, Authors, and Publishers. Their primary task is to defend strong copyright protection and collect royalties for artists.

ASCAP created a Bill of Rights for Songwriters and Composers a while ago. Taking the point-of-view of the artist, it lays out, what any serious observer would have to admit are, in most cases, very reasonable principles...

  1. We have the right to be compensated for the use of our creative works, and share in the revenues that they generate.

  2. We have the right to license our works and control the ways in which they are used.

  3. We have the right to withhold permission for uses of our works on artistic, economic or philosophical grounds.

  4. We have the right to protect our creative works to the fullest extent of the law from all forms of piracy, theft and unauthorized use, which deprive us of our right to earn a living based on our creativity.

  5. We have the right to choose when and where our creative works may be used for free.

  6. We have the right to develop, document and distribute our works through new media channels - while retaining the right to a share in all associated profits.

  7. We have the right to choose the organizations we want to represent us and to join our voices together to protect our rights and negotiate for the value of our music.

  8. We have the right to earn compensation from all types of "performances," including direct, live renditions as well as indirect recordings, broadcasts, digital streams and more.

  9. We have the right to decline participation in business models that require us to relinquish all or part of our creative rights - or which do not respect our right to be compensated for our work.

  10. We have the right to advocate for strong laws protecting our creative works, and demand that our government vigorously uphold and protect our rights.

Artists definitely deserve their just compensation. The problem is that hardly anyone disagrees with that point. Even the most staunchest advocates of the copyleft movement, including Lawrence Lessig himself, believe that the interests of artists need to be served - they simply seek to preserve the balance between those interests and the public domain.

In other words, where ASCAP goes wrong is not in the principles they lay out in their Bill of Rights; it's in their extreme and sometimes overly harsh attempts to protect copyrights at all costs.

For example, in the past, ASCAP has come under heavy scrutiny for threatening to sue the Girl Scouts and Boy Scouts of America for not paying licensing fees when they sang copyrighted songs in summer camps. Also, ASCAP has pursued a strategy of cracking down by demanding royalty fees from any club that holds an open mic night (even if most of the songs performed are originals), and has even sued a Manhattan pub for playing Bruce Springsteen songs over its jukebox.

Thus, the same reasonable observer who can see the validity in the Artists' Bill of Rights can also see the perversity of ASCAP's tactics in sometimes trying to implement it.

All of which reinforces the urgent need for copyright REFORM. As I've said before in this space, to frame the issue in black-and-white as being between artists versus pirates is a gross oversimplification. Sure, there are extremists on both sides, and suing the Girl Scouts for singing "Happy Birthday" is just as ridiculous as those on the copyleft who try to justify straight-up piracy. But where this debate is actually occurring in serious circles is how to reform copyright laws in order to preserve artists' rights while simultaneously maintaining a healthy public domain.

Any ultimate solution will have to follow that path.

Tuesday, July 20, 2010

How Congress Communicates on the Internet...

Much has been written in recent years about how internet technologies are changing the ways in which members of Congress engage the public. However, what's been less frequently discussed is how such innovations have spurred Congress to alter the way it operates as an institution.

In a study by Colleen J. Shogun of the Congressional Research Service, and published in April's Political Science & Politics Journal (Vol. 43, No. 2), some statistical light is shed on this topic...

  • In 1997, the last year without widespread email use in Congress, the House and Senate received a total of 30.5 million pieces of postal mail. By 2007, the combined total of emails and postal mail communications received was 491.6 million. That's over a 1500% increase in 10 years.

  • As far as how members of Congress communicate with each other, use of the exclusive "Dear Colleague" system, which enables members to send communications to other members about proposed legislation, committee action, briefings, chamber procedural issues, etc., has gone from 5,000 messages sent in 2003 to over 17,000 in 2009. That's a 240% increase in 6 years.

  • As members have quickly adopted Twitter as a favorite medium, a relatively small study of member tweets found that, in the summer of 2009, out of 1187 tweets, 69.8% originates from House Republicans, while only 14% came from House Democrats, and the remainder from members of the Senate.

    • Not only did more House Republicans use Twitter than their Democratic counterparts, they also tweeted more frequently.

    • Furthermore, out of those same tweets, 46.9% either provided links to other websites or or called attention to media activities of the member, such as being on a television show. 25% described an official action the member had taken on the floor or in committee, and 12.4% described the members position on an issue. Only 1.4% were direct replies to other tweets.

It's difficult to read too much into these numbers - the largest obstacle being that the statistics aren't current enough. Year-old studies may be fine for most policy research, but not for internet usage metrics (as any webmaster will tell you).

Nevertheless, the author lists a few possible ramifications of this dramatic increase in direct member-constituent dialogue: 1) that the trustee model of representation might wither, 2) that the "iron triangle" model of policymaking might need to develop into a four-sided structure to incorporate direct input from the public (meaning, interest groups could see their influence weaken), and 3) that congressional staff responsibilities may have to shift in order to handle the higher volume of constituent communications.

These points can all be debated, however, what seems to be indisputable in study after study is how internet technologies truly have altered some of our oldest and most fundamental institutions. But let's not go completely ga-ga just yet. After all, Congress still has standing bans on laptops, Blackberries, and cellphones on its different chamber floors.

Friday, July 09, 2010

The Internet-Versus-Books Debate...

In a very thought-provoking piece today in the New York Times, David Brooks argues that while the internet is good at helping people become more knowledgeable and well-informed, books are still better at making people more "cultivated".

What does this mean? Well, he begins by citing a number of research studies highlighting that 1) children reading books leads to significant educational gains, and 2) broadband internet access is not necessarily good for kids and may actually be harmful to their academic performance.

If this is the basis for his argument then it's not hard to question those assumptions and cast doubt on everything that follows. For starters, internet access and book ownership are hardly ever mutually exclusive - usually kids with broadband read books too. Having both would seem to render any conclusions about one or the other rather murky.

Second, as Brooks himself responsibly points out, there is also contrarian evidence that suggests that playing computer games and performing Internet searches actually improves a person’s ability to process information and focus attention.

Look, I'm not one of the zealots who believes the internet is a panacea for all educational shortcomings, and certainly don't deny its ability to reduce attention spans. But it's still an enormous leap to say that having internet access is actually harmful to academic performance. After all, does anyone really believe that their children would be more empowered for school and improve their chances of going to college by getting rid of all the computers in their home?

Where Brooks makes a more valid point is in his assessment of what it means to be "cultivated" and how to get there. He begins by reviewing the differences in approach that are involved in the internet-versus-books debate...

What matters is the way people think about themselves while engaged in the two activities. A person who becomes a citizen of the literary world enters a hierarchical universe. There are classic works of literature at the top and beach reading at the bottom.

A person enters this world as a novice, and slowly studies the works of great writers and scholars. Readers immerse themselves in deep, alternative worlds and hope to gain some lasting wisdom. Respect is paid to the writers who transmit that wisdom.

A citizen of the Internet has a very different experience. The Internet smashes hierarchy and is not marked by deference... Internet culture is egalitarian. The young are more accomplished than the old. The new media is supposedly savvier than the old media. The dominant activity is free-wheeling, disrespectful, antiauthority disputation...

And in a terrific description of the benefits of reading in general, he goes on to say...

The literary world is still better at helping you become cultivated, mastering significant things of lasting import. To learn these sorts of things, you have to defer to greater minds than your own. You have to take the time to immerse yourself in a great writer’s world. You have to respect the authority of the teacher.

Right now, the literary world is better at encouraging this kind of identity. The Internet culture may produce better conversationalists, but the literary culture still produces better students.

It’s better at distinguishing the important from the unimportant, and making the important more prestigious.

This is a potentially fabulous way of looking at the current dynamic. However, caution should, as always, be exercised here as well. Lost in this entire discussion is the importance of WHAT people are reading online.

And, yes, that matters.

Wednesday, July 07, 2010

YouTube and the 2008 Elections...

Here are a quick set of links to some favorite articles in this month's Journal of Information Technology and Politics - a journal that I am active in contributing towards, and all centered around a common theme... YouTube and the 2008 Elections.

Note: Not all of the articles are publicly accessible. For those that aren't, you'll need to login through an academic account or library.

Some of this research data is fascinating, as not all of it supports widespread beliefs about the relationship between politics and the internet. But for those of you non-academics with only a passing interest on the subject, if nothing else, this list is a strong indication of the many directions in which this burgeoning research field is heading.

Tuesday, July 06, 2010

Social Network Users' Bill of Rights...

One of the goals of the recent ACM Conference on Computers, Freedom, and Privacy was to collectively draft a Bill of Rights for online social-network users. They successfully did so, but to what effect?

The goals of this Bill of Rights were rather murky from the outset. As stated on the ACM blog before the conference took place...

A bill of rights sends a message to sites about what their users expect. With enough momentum, it can give user-focused commercial open-source projects an opportunity to distinguish themselves by adopting the rights — and highlight the sites who aren’t willing to. It’s also a way of providing input in the ongoing debates about legislation and regulation. And just as importantly, the discussions around a bill of rights are a great opportunity for education and debate about what kind of online society we want to create.

It's obviously well-intentioned; also, a little hokey.

Take a look for yourself at the final draft of the Social Network Users' Bill of Rights which was ultimately passed by conference attendees.

Of the 14 articles, 13 of them were approved by a unanimous vote. Unanimous! In a technology community defined by the fierce independence of its individuals, this is nothing short of extraordinary - and should have been the first indication that any real substantive issues had failed to be addressed in a meaningful way.

Additionally, the plan is to now present this document to the major social-networking companies. It doesn't take a Facebook power-user to recognize that those companies might have a wee bit of a problem with articles like #9 on Data Portability (which would make it easier for people to switch their profiles to a different social-networking website).

Also, article #12's "Right to Self-Define", which would guarantee people's rights to create more than one identity and use pseudonyms, seems like a recipe for disaster. Not only would that exacerbate problems like online sexual predators, but would greatly hamper law enforcement as well. And really, who even wants this? Reverting back to the early MySpace and Friendster days is hardly high on users' agendas. If anything, this may have been one arena where social-networking sites have actually been getting it right. Ah, irony.

Most of the remainder of the Bill of Rights, again, is well-intentioned and has its heart in the right place. But it's little more than a vague set of general principles. How anyone can think this document will produce meaningful effects is beyond me.